Cash flow with 100% leverage

[Leona N.]

Think I'm experiencing analysis paralysis we have run so many scenarios lately. We are looking at a deal that is more of a business than real estate in that it would be a full time job for 4-5 months out of the year. It also includes a house hack and our living expenses would be almost nothing for the full year. My question is would breaking even or having a small cash flow be acceptable being no money in? Obviously if we put more money down the cash flow increases but if we can fully leverage that seems like the better bet? Again we would be required to work and be tied down several month to make this work however long term it does fit in very well with our goals and plans. Thanks for any advice.

[Michael Le]

You have to consider all of the costs. If you have to work on it for 4-6 months out of the year then that is opportunity costs. What do you think 4-6 months of your year is worth? For some people that's only $30k and for others that is $500k. Either way there is a cost to it and so you really don't have 100% leverage because you're actually putting opportunity costs as payment. And even worse it's not a one time 'down payment' that you can base that leverage % on. It's a yearly thing so every year your leverage gets lower and lower as you work more and more on this property that brings in no cash flow. This deal only works if you are getting massive equity every year to make up for the $0 cash flow.